This guy called people to sell gold and get mortgages in a March 2012 article

[touchring]

https://dailyreckoning.com/is-a-mort...ld-and-silver/

I can't seem to find any more articles from Gary Gibson after 2013.

[jk]

Re: This guy called people to sell gold and get mortgages in a March 2012 article

dan amerman pointed out many years ago that a fixed rate mortgage, preferably 30yr, is a terrific inflation hedge. it's the reason a lot of homeowners did really well in the 1970's. their house values went up nominally, but actually declined a little bit in real terms. however, the debt held against that asset, their fixed rate mortgages, were fixed at a nominal value and had their real values shrink incredibly.

amerman said he noticed this when he was working in a bank - when reviewing customers' balance sheets he noticed that most of them had what he called "toy mortgages." that is, a house nominally valued at, say. 250k might have a 30k mortgage originated before the inflation surge.

this is the reason i resist the conventional wisdom about the desirability of paying off a mortgage.

[thriftyandboringinohio]

Re: This guy called people to sell gold and get mortgages in a March 2012 article

dan amerman pointed out many years ago that a fixed rate mortgage, preferably 30yr, is a terrific inflation hedge. it's the reason a lot of homeowners did really well in the 1970's. their house values went up nominally, but actually declined a little bit in real terms. however, the debt held against that asset, their fixed rate mortgages, were fixed at a nominal value and had their real values shrink incredibly.

amerman said he noticed this when he was working in a bank - when reviewing customers' balance sheets he noticed that most of them had what he called "toy mortgages." that is, a house nominally valued at, say. 250k might have a 30k mortgage originated before the inflation surge.

this is the reason i resist the conventional wisdom about the desirability of paying off a mortgage.

That's an interesting conclusion. If we do the math, do we find that the interest rate environment is the key? The home buyer in 1974 got an 8% mortgage and held it during a period of rising rates. Dramatically rising. Here's a chart:



In that environment of rising rates and high inflation a fixed rate mortgage was paying negative interest in real terms.
Holding a cheap mortgage was a money-maker as rates rose.

My first mortgage in 1989 was at about 12% APR for a 30 year fixed, on the downside of the peak. Rates have drifted down ever since.
Although we've only owned two primary residence homes we've had a half-dozen mortgages, refinancing to capture a lower rate and shortening the term to 15 years.
In the past few years we made a push to pay it off, freeing up quite a bit of cash flow.

Is it possible that the decision whether to hold a mortgage or pay it off depends on the rate environment?
Full disclosure - when we bought our second house in 2001, we went big, expecting a spike in inflation that would make the bigger house a good inflation hedge.
That plan failed, we did not get the big spike in inflation, interest rates, or home values I was expecting. But we live in a nice house and now it's paid off. No harm done, but no gain.

Looking forward I would expect higher rates and higher inflation, making the mortgage gambit a winner again. But of course the only time I tried it I was wrong. "It's hard to make predictions, especially about the future".

[jk]

Re: This guy called people to sell gold and get mortgages in a March 2012 article

iirc my first mortgage was about the same as yours. i'm still in the same house [expanded from its original size] and have refinanced several times over the years. i resist paying off the mortgage for the reason i stated, but the calculation may have to be re-examined in light of the new tax law. with my mortgage interest and my 10k of allowed s.a.l.t. i get just above the new standard deduction, but it's really almost as if my mortgage interest is no longer deductible. otoh, most of my funds are tied up in other things, so even if i decided i should pay it off it wouldn't happen for some time.